1. O PERATIONAL S TRATEGIES O PERATIONAL S TRATEGIES : L OCATION “Columbus didn’t have a business plan when he discovered America.” Andrew S Grove (Intel) BUSS3.14 Location

2. O PERATIONAL S TRATEGIES : L OCATION I N THIS TOPIC YOU WILL LEARN ABOUT : Methods of making location decisions Benefits of optimal location The advantages and disadvantages of multi-site location Issues relating to international location BUSS3.14 Location

3. O PERATIONAL S TRATEGIES : L OCATION Where should the firm locate sites for expansion ? Should the firm relocate ? Optimal (best) location will depend on a number of factors and, as location decisions are strategic in nature, will be decided at board room level. BUSS3.14 Location

4. O PERATIONAL S TRATEGIES : L OCATION METHODS OF MAKING LOCATION DECISIONS Quantitative factors are measureable so we might use the following methods: Investment Appraisal Break Even Analysis Economies of Scale Cost Minimisation /Profit Maximisation Based on numbers BUSS3.14 Location Explain the meaning of each term listed as a quantitative factor. How might these be used to help make location decisions? Understanding the maths is an important element of decision- making

5. O PERATIONAL S TRATEGIES : L OCATION METHODS OF MAKING LOCATION DECISIONS BUSS3.14 Location Qualitative factors are non-measureable so we might use the following methods: o Staff evaluation o Customer evaluation o Expert opinion Based on value judgements (opinions) TVR moves abroad

6. O PERATIONAL S TRATEGIES : L OCATION METHODS OF MAKING LOCATION DECISIONS QUANTITATIVE FACTORS Cost, revenue and profit are of the utmost importance when making location decisions: BUSS3.14 Location Quantitative factors Labour costs Transport costs Grants available Sales potential Building costs Supply costs

7. O PERATIONAL S TRATEGIES : L OCATION METHODS OF MAKING LOCATION DECISIONS QUALITATIVE FACTORS Qualitative factors are far more difficult to measure as they are based on value judgements. The board will weigh up a number of qualitative factors that will affect location: o Environmental/ethical factors - Will products made abroad exploit a poor labour force? And leave UK workers jobless! o Infrastructure - Is it easy to access the workplace for the workforce? And the management! o Legislation - Can the firm produce cheaply in countries with less strict laws? And increase dividends! o Quality of labour force - Will moving abroad affect quality? And upset customers! BUSS3.14 Location

8. QUANTITATIVE V QUALITATIVE Optimal location occurs when the chosen location gives the best combination of quantitative and qualitative factors. In large PLCs that have shareholders’ returns as their main aim profit maximisation is often the main factor. Smaller firms might be more concerned about quality factors such as the local environment. BUSS3.14 Location

9. O PERATIONAL S TRATEGIES : L OCATION BENEFITS OF OPTIMAL LOCATION It is likely that a firm will have to compromise between quantitative and qualitative factors: BUSS3.14 Location QUANTITATIVEQUALITATIVE High Fixed Costs Good infrastructure (enabling In Central London (rent)staff and customers access) Lower Labour Costs inQuality of product (customer Indian call centresservice often poorer) Government GrantsWorking environment (harder (High Unemployment areas) to attract quality workers) Optimal location is difficult to assess. If a firm relocates in a high unemployment area due to a government grant it might find it difficult to attract the best workers, thus losing money in the long run. Clearly, there is no right or wrong answer.

10. ADVANTAGES OF MULTI-SITE LOCATION Multi-site location occurs when a business is operating from more than one location ADVANTAGES Easier access for consumers Delegation of responsibility to management with local knowledge Lower costs of production Closeness to target markets Specialisation of workforce BUSS3.14 Location M&S International expansion

11. DISADVANTAGES OF MULTI-SITE LOCATION DISADVANTAGES Communication becomes more difficult between different sites Coordination of the workforce is more difficult, requiring systems to enable control Cultural problems can arise, particularly between countries Competition between firms from the same company can occur if located too close to each other BUSS3.14 Location

12. ISSUES RELATING TO INTERNATIONAL LOCATION International location occurs when a firm operates in more than one country. Globalisation is the term used to describe the integration of the world’s economies. UK firms have increasingly decided to operate in other countries. This has seen jobs move abroad and the UK market becoming a sub-section of a global market. BUSS3.14 Location

13. REASONS FOR INTERNATIONAL LOCATION – GLOBAL MARKETS A global market is one that targets all of the world’s economies rather than individual countries. By targeting other countries UK firms have been able to expand sales at a time when traditional markets such as the EU have seen slower growth. Less Developed Countries such as China have seen rapid economic growth and UK firms are keen to gain a share of this new found wealth and growing market. Firms can achieve economies of scale by targeting one big market. For example, purchasing economies will occur through an increase in production; global advertising campaigns can make use of global ‘names’ e.g. David Beckham to sell the product. BUSS3.14 Location

14. REASONS FOR INTERNATIONAL LOCATION – COST REDUCTION Cost reduction occurs when a firm lowers its fixed and variable costs. This can be achieved by moving to those countries with cheaper costs in a number of areas. Labour costs – many UK firms have moved to countries with low labour costs e.g. India, Eastern Europe Raw material costs – it is often cheaper to buy raw materials from abroad rather than in the UK Land/Premises – the UK/EU have very high land costs in comparison to LDCs making it cheaper to set up there Taxation – some UK companies have relocated to low tax states so that they do not have to pay the same rates of Corporation Tax (the UK tax on firms) BUSS3.14 Location Chocolate Orange factory moves east

15. REASONS FOR INTERNATIONAL LOCATION – COST REDUCTION BUSS3.14 Location The AQA specification specifically uses the term ‘off- shoring’ which describes the relocation of a business process to another country. This could be production e.g. China makes shirts for Marks and Spencers or services e.g. India provide call-centres for AOL. You will need access to the internet to view these clips Discuss the advantages and potential disadvantages of off-shoring

16. REASONS FOR INTERNATIONAL LOCATION – TRADE BARRIERS Trade Barriers are anything that limits the free movement of goods and services between countries. We use the term protectionism to describe the system where domestic firms are protected from international competition. There are a number of trade barriers, the most common being: Tariffs – these are taxes (customs duties) on imported goods. These make the price of the import more expensive than domestically produced goods. Quotas – these fix a limit on the quantity of imported goods. Once a certain amount of a good has been supplied to a country, no more of that good is allowed in. BUSS3.14 Location

17. A CTIVITY – M ANUFACTURING ABROAD Discuss the advantages and potential disadvantages of Cadbury manufacturing abroad Write an article for the local Kenysham paper outlining the reasons for and against Cadbury moving chocolate production to Poland. BUSS3.14 Location